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New Castle was originally settled by the Dutch West India Company in 1651, under the leadership of Peter Stuyvesant, on the site of a former aboriginal village, "Tomakonck" ("Place of the Beaver"), to assert their claim to the area based on a prior agreement with the aboriginal inhabitants of the area. The Dutch originally named the settlement Fort Casimir, but this was changed to Fort Trinity (Swedish: Trefaldighet) following its seizure by the colony of New Sweden on Trinity Sunday, 1654. The Dutch conquered the entire colony of New Sweden the following year and rechristened the fort Nieuw-Amstel ("New Amstel"). This marked the end of the Swedish colony in Delaware as an official entity, but it remained a semi-autonomous unit within the New Netherland colony and the cultural, social, and religious influence of the Swedish settlers remained strong. As the settlement grew, Dutch authorities laid out a grid of streets and established the town common (The "Green"), which continue to this day.

The spire on top of the Court House, Delaware's Colonial capitol and first state house, was used as the center of the Twelve-Mile Circle forming the northern boundary of Delaware. The Delaware River within this radius to the low water mark on the opposite shore is part of Delaware. Thus the Delaware Memorial Bridge was built as an intrastate span by Delaware, without financial participation by neighboring New Jersey.[citation needed]

Prior to the establishment of Penn's Philadelphia, New Castle was center of government. After being transferred to Penn, Delaware's Swedish, Dutch, and English residents used to the relaxed culture of the Restoration monarchy grew uncomfortable with the more conservative Quaker influence, so Delaware petitioned for a separate legislature, which was finally granted in 1702. Delaware formally broke from Pennsylvania in 1704. New Castle again became the seat of the colonial government, thriving with the various judges and lawyers that fueled the economy. Many smaller houses were torn down and replaced in this era. In February 1777, John McKinly was elected the first President of Delaware (a title later renamed "Governor"). During the Revolution, when New Castle was besieged by William Howe, the government elected to move its functions south to Dover in May 1777, which pleased the representatives from Kent and Sussex, anyway. McKinley was captured by the British and held prisoner for several months. New Castle remained the county seat until after the Civil War, when that status was transferred to Wilmington. Three signers of the Declaration of Independence were from New Castle — Thomas McKean, George Read, and George Ross.

The 16-mile (26 km) portage between the Delaware River and Chesapeake Bay saved a 400-mile (640 km) trip around the Delmarva Peninsula, so this brought passengers, goods, and business to New Castle's port. In the years following the Revolution, a turnpike was built to facilitate travel between the two major waterways. Later, New Castle became the eastern terminus of the New Castle and Frenchtown Railroad, the second-oldest rail line in the country, launched in 1828 with horse-drawn rail cars, then converting to steam power when an engine was purchased from Great Britain in 1832. The line traversed the Delmarva Peninsula, running to the Elk River, Maryland, from where passengers changed to packet boats for further travel to Baltimore and points south. This helped the New Castle economy to further boom; however, by 1840, rail lines were in place between Philadelphia and Baltimore, which had a stop in Wilmington, thus leaving New Castle to deal with a substantial decline in traffic and revenue.

The decline in New Castle's economy had the long-range fortunate effect of preventing most residents from making any significant structural changes to their homes. So, the many buildings of historic New Castle look much as they did in the colonial and Federal periods.

New Castle has a tradition, dating back to 1927, of tours of historical homes, churches, and gardens. These tours, called "A Day in Olde New Castle", are usually held on the third Saturday of May. Householders dress in colonial costumes and an admittance fee is collected which is used toward the maintenance of the town's many historic buildings. In June the town holds its annual Separation Day celebration.

In the City of New Castle, many small and historical neighborhoods are within the city limits. However, many larger neighborhoods are surrounding the City limits and are labeled as New Castle within the general consensus. The New Castle area ranges from the southern city limits of Wilmington to the north, the Delaware River to the East, Wrangle Hill Road to the South, and Bear and Christiana to the West.City of New Castle

Booth House, 212 Delaware St. (1713 but with many renovations since). Birthplace of Judge James Booth, Jr.

Gilpin House, 210 Delaware St. (One of town's oldest buildings, but three renovations over time have obscured original facade). It was built as the town's hotel/tavern and served as such until Prohibition in 1920. (In 1820 it was called "Arms of the United States"). Today it houses a bank and five apartments.

William Penn Guest House (ca. 1680) the oldest building in town, legend says when Penn first stepped foot on American soil, he walked to this house, where his friend and local magistrate lived, and spent the night.

Lesley Manor, 123 W 7th St. (1855/1870) Built in 1855 for Dr. Allen Voorhees Lesley. Designed by Thomas and James Dixon of Baltimore, MD, who also designed the Wilmington Opera House. Lesley had a large wing added in 1870 to allow the kitchens to be relocated from the basement. The now private residence features gothic bargeboards, large cast bronze gas chandeliers, and a 5 story tower.

According to the United States Census Bureau, the city has a total area of 3.2 square miles (8.2 km²), of which, 3.0 square miles (7.9 km²) of it is land and 0.1 square miles (0.3 km²) of it (3.79%) is water.

This city is the home of Broad Dyke, the first dyke built in the United States.

As of the census[7] of 2000, there were 4,862 people, 2,012 households, and 1,339 families residing in the city. The population density was 1,594.6 people per square mile (615.5/km²). There were 2,199 housing units at an average density of 721.2 per square mile (278.4/km²). The racial makeup of the city was 77.48% White, 20.20% African American, 0.25% Native American, 0.39% Asian, 0.84% from other races, and 0.84% from two or more races. Hispanic or Latino of any race were 2.41% of the population.

There were 2,012 households out of which 26.2% had children under the age of 18 living with them, 47.1% were married couples living together, 14.9% had a female householder with no husband present, and 33.4% were non-families. 27.7% of all households were made up of individuals and 9.8% had someone living alone who was 65 years of age or older. The average household size was 2.42 and the average family size was 2.93.

In the city the population was spread out with 21.8% under the age of 18, 7.8% from 18 to 24, 28.6% from 25 to 44, 27.5% from 45 to 64, and 14.4% who were 65 years of age or older. The median age was 40 years. For every 100 females there were 88.3 males. For every 100 females age 18 and over, there were 85.6 males.

The median income for a household in the city was $52,449, and the median income for a family was $56,368. Males had a median income of $40,153 versus $31,571 for females. The per capita income for the city was $24,052. About 3.9% of families and 5.3% of the population were below the poverty line, including 5.8% of those under age 18 and 7.5% of those age 65 or over.